Every year I have the talk with my sister about how to calculate cost of goods sold for her antique business. And every year, we have to start from scratch. But that's OK; she doesn't do this all the time, so she doesn't remember from year to year. This year, I put together an article with a list of the information needed to calculate cost of goods sold.
Calculating cost of goods sold can be simple or very complicated. If, like my sister, you purchase items for resale, it's pretty simple. But, if you have multiple products that you are manufacturing or putting together, it can get very complicated. The important thing is the accounting software you use. It has to be able to handle inventory of finished products, materials and parts, and other costs associated with products.
Susan Ward, at Small Business -Canada, has an article comparing the top 5 accounting software programs. I used one of these programs for a Schedule C, using the interview process. I entered the figures at the appropriate places and the software calculated the cost of goods sold. But, don't forget this business is just buying products and re-selling them. If your business processes are very complicated, you may want to hire an accountant to help you keep track of everything.
Don't just skip over cost of goods sold because you don't know how to do it. These costs are business expenses and they reduce your income, so it's important to gather the information and include the calculation on your business tax return, to lower your business income and your tax bill.
Read more about Cost of Goods Sold, including where this calculation is included on all types of business tax forms.
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